HCSG Healthcare Services Group Inc

Delivers QoQ and YoY Growth In Revenue, Earnings and Cash Flow

• Revenue of $428.1 million, in line with expectations.
• Net income and diluted EPS of $14.0 million and $0.19.
• Reported and adjusted cash flow from operations of $4.3 million and $19.0 million.
• Reaffirms Q4 revenue estimate of $430.0 to $440.0 million and FY 2024 cash flow forecast of $40.0 to $55.0 million.

Healthcare Services Group, Inc. (NASDAQ:HCSG) today reported results for the three months ended September 30, 2024.

Ted Wahl, Chief Executive Officer, stated, “We’re very pleased with our third quarter results, which underscore the positive momentum we're carrying into the fourth quarter. Executing on our three strategic priorities – driving growth, managing costs, and optimizing collections – is clearly paying off, resulting in sequential and year-over-year growth in revenue, earnings, and cash flow. Looking ahead, we are confident that our focus on these priorities, supported by our strong business fundamentals, will enable us to further accelerate growth, enhance profitability, and maximize cash flow through 2025 and beyond.”

Third Quarter Results

• Revenue was reported at $428.1 million, in line with the Company’s expectations of $425.0 million to $435.0 million.
  • Housekeeping & laundry and dining & nutrition segment revenues and margins were $191.1 million and 6.4% and $237.0 million and 5.3%, respectively.
  • The Company’s Q4 expected revenue range is $430.0 to $440.0 million.
• Cost of services was reported at $364.7 million or 85.2%.
  • The Company’s goal is to continue to manage cost of services, excluding CECL, in the 86% range.
• SG&A was reported at $46.9 million; after adjusting for the $2.4 million increase in deferred compensation; actual SG&A was $44.5 million or 10.4%.
  • The Company’s goal continues to be achieving SG&A in the 8.5% to 9.5% range.
• Net income and diluted EPS were reported at $14.0 million and $0.19, respectively.
• Adjusted EBITDA was reported at $24.8 million.
• Cash flow and adjusted cash flow from operations was $4.3 million and $19.0 million, respectively.
  • The Company reaffirmed its 2024 adjusted cash flow from operations forecast in the range of $40.0 million to $55.0 million.

Balance Sheet and Liquidity

The Company’s primary sources of liquidity are cash and cash equivalents, its revolving credit facility, and cash flow from operating activities. As of the end of the third quarter, the Company had a current ratio of 2.9 to 1, cash and marketable securities of $130.0 million, and a $500.0 million credit facility (inclusive of its $200.0 million accordion), which expires in November 2027.

In 2024, the Company has repurchased over 350,000 shares, or $4.0 million, of its common stock through September 2024, including over 90,000 shares, or $1.0 million of its common stock during the third quarter. Since the February 2023 share repurchase authorization, the Company has repurchased 1.4 million shares, or $15.2 million of its common stock. The Company has 6.1 million shares remaining under its authorization.

Upcoming Events and Conference Call

The Company will be participating in the UBS Global Healthcare Conference on November 13, 2024 at the Terranea Resort Hotel in Rancho Palos Verdes, CA. The Company will also be participating in the Raymond James Sonoma Small Cap Summit on November 18, 2024 at The Lodge at Sonoma in Sonoma, CA.

The Company will host a conference call on Wednesday, October 23, 2024, at 8:30 a.m. Eastern Time to discuss its results for the three months ended September 30, 2024. The call may be accessed via phone at 1 (800) 715-9871, Conference ID: 9951274. The call will be simultaneously webcast under the “Events & Presentations” section of the Investor Relations page on the Company’s website, www.hcsg.com. A replay of the webcast will also be available on the website for one year following the date of the earnings call.

About Healthcare Services Group, Inc.

Healthcare Services Group (NASDAQ: HCSG) is an experienced leader in managing housekeeping, laundry, dining, and nutritional services within the healthcare industry. With more than 45 years of experience, HCSG aims to provide improved operational, regulatory, and financial outcomes for our clients.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This release and any schedules incorporated by reference into it may contain forward-looking statements within the meaning of federal securities laws, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “will,” “goal,” and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services to the healthcare industry and primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the nine months ended September 30, 2024; credit and collection risks associated with the healthcare industry; the impact of bank failures; our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company's expectations with respect to selling, general, and administrative expense; the impacts of past or future cyber attacks or breaches; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2023 under “Government Regulation of Customers,” “Service Agreements and Collections,” and “Competition” and under Item 1A. “Risk Factors” in such Form 10-K.

These factors, in addition to delays in payments from customers and/or customers undergoing restructurings, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected by continued inflation particularly if increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs) cannot be passed on to our customers.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new customers, retain and provide new services to existing customers, achieve modest price increases on current service agreements with existing customers and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies. There can be no assurance that we will be successful in that regard.

USE OF NON-GAAP FINANCIAL INFORMATION

To supplement HCSG’s consolidated financial information, which are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), the Company believes that certain non-GAAP financial measures are useful in evaluating operating performance and comparing such performance to other companies.

The Company is presenting adjusted cash flows used in operations, earnings before interest, taxes, depreciation and amortization (“EBITDA”), and EBITDA excluding items impacting comparability (“Adjusted EBITDA”). We cannot provide a reconciliation of forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. The presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.

HEALTHCARE SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

 

September 30,

 

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

Revenue

 

$

428,149

 

$

411,388

 

 

$

1,277,870

 

$

1,247,549

Operating costs and expenses:

 

 

 

 

 

 

 

 

Cost of services

 

 

364,730

 

 

 

376,936

 

 

 

1,108,383

 

 

 

1,107,519

 

Selling, general and administrative

 

 

46,888

 

 

 

39,047

 

 

 

138,236

 

 

 

120,523

 

Income (loss) from operations

 

 

16,531

 

 

 

(4,595

)

 

 

31,251

 

 

 

19,507

 

Other income, net

 

 

2,277

 

 

 

(1,738

)

 

 

6,885

 

 

 

1,249

 

Income (loss) before income taxes

 

 

18,808

 

 

 

(6,333

)

 

 

38,136

 

 

 

20,756

 

 

 

 

 

 

 

 

 

 

Income tax provision (benefit)

 

 

4,778

 

 

 

(1,286

)

 

 

10,585

 

 

 

5,878

 

Net income (loss)

 

$

14,030

 

 

$

(5,047

)

 

$

27,551

 

 

$

14,878

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.19

 

 

$

(0.07

)

 

$

0.37

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$

0.19

 

 

$

(0.07

)

 

$

0.37

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

73,687

 

 

 

74,364

 

 

 

73,822

 

 

 

74,446

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

 

73,926

 

 

 

74,364

 

 

 

74,007

 

 

 

74,496

 

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

September 30, 2024

 

December 31, 2023

Cash and cash equivalents

$

27,055

 

$

54,330

Restricted cash equivalents

 

1,084

 

 

 

—

 

Marketable securities, at fair value

 

76,776

 

 

 

93,131

 

Restricted marketable securities, at fair value

 

25,085

 

 

 

—

 

Accounts and notes receivable, net

 

406,495

 

 

 

383,509

 

Other current assets

 

41,623

 

 

 

40,726

 

Total current assets

 

578,118

 

 

 

571,696

 

 

 

 

 

Property and equipment, net

 

28,435

 

 

 

28,774

 

Notes receivable — long-term, net

 

22,908

 

 

 

24,832

 

Goodwill

 

75,529

 

 

 

75,529

 

Other intangible assets, net

 

10,113

 

 

 

12,127

 

Deferred compensation funding

 

48,647

 

 

 

40,812

 

Other assets

 

42,091

 

 

 

36,882

 

Total assets

$

805,841

 

 

$

790,652

 

 

 

 

 

Accrued insurance claims — current

$

21,510

 

 

$

22,681

 

Other current liabilities

 

175,694

 

 

 

194,247

 

Total current liabilities

 

197,204

 

 

 

216,928

 

 

 

 

 

Accrued insurance claims — long-term

 

61,520

 

 

 

61,697

 

Deferred compensation liability — long-term

 

48,915

 

 

 

41,186

 

Lease liability — long-term

 

9,029

 

 

 

11,235

 

Other long-term liabilities

 

425

 

 

 

2,990

 

Stockholders' equity

 

488,748

 

 

 

456,616

 

Total liabilities and stockholders' equity

$

805,841

 

 

$

790,652

 

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

Reconciliation of GAAP net income (loss) to EBITDA and adjusted EBITDA (in thousands)

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

 

2024

 

 

 

2023(1)

 

 

 

2024

 

 

 

2023(1)

 

GAAP net income (loss)

 

$

14,030

 

 

$

(5,047

)

 

$

27,551

 

 

$

14,878

 

Income tax provision (benefit)

 

 

4,778

 

 

 

(1,286

)

 

 

10,585

 

 

 

5,878

 

Interest, net

 

 

(6

)

 

 

530

 

 

 

132

 

 

 

1,119

 

Depreciation and amortization(2)

 

 

3,773

 

 

 

3,250

 

 

 

10,983

 

 

 

10,565

 

EBITDA

 

$

22,575

 

 

$

(2,553

)

 

$

49,251

 

 

$

32,440

 

Share-based compensation

 

 

2,231

 

 

 

2,384

 

 

 

6,828

 

 

 

6,793

 

(Gain)/loss on deferred compensation, net(3)

 

 

(1

)

 

 

(15

)

 

 

(40

)

 

 

67

 

Adjusted EBITDA

 

$

24,805

 

 

$

(184

)

 

$

56,039

 

 

$

39,300

 

Adjusted EBITDA as a percentage of revenue

 

 

5.8

%

 

 

0.0

%

 

 

4.4

%

 

 

3.2

%

Reconciliation of GAAP cash flows provided by (used in) operations to adjusted cash flows provided by operations (in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

GAAP cash flows provided by (used in) operations

 

$

4,312

 

$

2,940

 

$

(5,402

)

 

$

(5,947

)

Accrued payroll(4)

 

 

14,682

 

 

 

15,657

 

 

 

12,820

 

 

 

16,118

 

Adjusted cash flows provided by operations

 

$

18,994

 

 

$

18,597

 

 

$

7,418

 

 

$

10,171

 

1.

For the three and nine months ended September 30, 2023, the Company's presentation of GAAP Net Income (Loss) has been revised to reflect the impact of an accounting error related to the Company’s estimate for accrued vacation that was immaterial to the Company’s previously reported consolidated financial statements or unaudited interim condensed consolidated financial statements. The Company's presentation of EBITDA and Adjusted EBITDA have also been revised to reflect the removal of certain reconciling items between reported GAAP figures and non-GAAP figures.

2.

Includes right-of-use asset depreciation of $2.0 million and $5.8 million for the three and nine months ended September 30, 2024, respectively, and $1.8 million and $4.6 million for the three and nine months ended September 30, 2023.

3.

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key employees which is also referred to as the Company’s “Deferred Compensation” plan. For SERP participants, the Company has historically retained, and anticipates continuing to retain, 100% of the funds received from SERP participants and holds such assets (the “Deferred Compensation Assets”) in a brokerage account where the investments are managed to mirror the investment elections of SERP participant holdings under such plans (the “Deferred Compensation Liabilities”). The Company’s changes in fair market value of the Deferred Compensation Assets are presented under the “Other income, net” caption on the Company’s Consolidated Statements of Comprehensive Income, however the corresponding and offsetting changes in the fair market value of the Deferred Compensation Liabilities are presented under the “Selling, general and administrative expense” caption.

4.

The accrued payroll adjustment reflects changes in accrued payroll for the three and nine months ended September 30, 2024 and 2023. The Company processes payroll on set weekly and bi-weekly schedules, and the timing of payments may result in operating cash flow increases or decreases which are not indicative of the Company’s quarterly cash flow performance.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241023384049/en/

Theodore Wahl President and Chief Executive Officer

Matthew J. McKee Chief Communications Officer

215-639-4274 investor-relations@hcsgcorp.com